Category Archives: Public Policy

June 5, 2011 · 5:02 am

It’s Families Stupid

In Nate Silver’s recent post “What Do Economic Models Really Tell Us About Elections?” he argues that it’s not much. All in all I agree with his conclusions, but for different reasons. He takes a look at GDP growth and the margin of victory/loss in a presidential election, and shows when you take away inflation, 43 percent of incumbents win reelection. He admits these numbers don’t go into why, but that’s where I come in.

The fact is GDP doesn’t measure what voters really care about and can miss a lot of important aspects to a families quality of life. Pollster’s never ask how many people know how much the economy grew in the last quarter. Instead they ask how they feel it is going, and since the majority of voters aren’t economists, the only reference they can refer to is themselves. So they think about if they are able to pay the bills, put food on the table, and have healthcare for the members of their family. The reason why Nate’s formulas are so off is because GDP, like most macro data, doesn’t cover these things. Even basic data like average incomes still don’t tell you the whole story. Take a look at the average income for individuals:

Whether incomes have gone up or down, it hasn’t lead to a President, or his party, keeping the White House. This was the case in 1976, 1992, and 2000. While there wasn’t much change between 2004 and 2008,  there was a drop in 2009 because of the Great Recession, and we all know who won that year.

While pollsters try and figure out what’s on people’s minds, economists need to try and start doing the same thing. A Washington think tank called the Economic Policy Institute came out with a report titled The Rising Instability of American Family Incomes, 1969-2004. The authors point out that “Part of the reason why family economic instability—sometimes called “income volatility”—has not been extensively examined is that aggregate economic statistics have been relatively stable and favorable. Neither the 1991 nor the 2001 recessions were particularly deep, and inflation and unemployment have remained historically low. Yet.. these broadly stable and favorable aggregate indicators mask many signs of declining economic security among American families.”

The report came out in May of 2008, before the Great Recession, but some of the findings might surprise you. It turns out 15 percent of American’s saw their salaries decrease between 1969 and 2004, causing serious strain within the family. Right at the turn of the century, levels of family income were extremely violent, where over half of American families saw their earnings drop.

Just because incomes were rising and unemployment was low, didn’t mean all families were living the high life. Health care costs soared way over inflation, so even if there were two breadwinners per household, there was still a good chance they couldn’t afford health insurance. Not to mention most people received coverage through their job. And future problems are becoming apparent. As the price of food has gone up, it will eventually start affecting a large amount of families.

The unemployment numbers that came out last week weren’t good. And yes those and other macro indicators can show politicians where the state of the overall economy is right now. But if politicians want to actually do something about it, they need to look at the root causes of high unemployment, why food prices are rising, and figure out why the cost of health care has been rising. But they can’t do this without getting the right information. If a politicians job is to get reelected, they will start demanding the information that will show them how to help their constituents, and economists will start figuring out ways to calculate it.

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Filed under Economics, Election, Families, Political Economy, Politics, Public Policy, Think Tank, Unemployment

June 3, 2011 · 5:31 pm

Taxes: Political vs. Reality

It’s not every day the Working Families Party and the Manhattan Institute agree on a issue. But in the case of capping property taxes here in New York, they found a common cause.

Last week Governor Cuomo and Republican’s in the Senate agreed to cap property taxes by 2 percent for parts of Long Island, Westchester, and most of upstate New York (you’re welcome Westchester, I won’t bundle you in with the suburbs of Albany, Syracuse, or Buffalo). There was no choice but to lower property taxes. Being that they were already one of the highest in the nation and many families were already tightening their belts as much as they could. But the problem was that the revenue was not made up from anywhere else.

Instead of raising taxes on the wealthy or corporations, New York’s legislature cut programs for education, the homeless, and safety. These cuts have had a disproportionate affect on the bigger counties and cities. While 93 percent of counties were able to pass education budgets, New York City’s Council is now debating the ways it can stop experienced teachers from being fired. Neither Syracuse, Buffalo, or Albany, figured out how to pass their budgets either.

One of the reasons for the bad employment data that came out today was because state governments cut their budgets. But raising taxes is never a popular move, especially in bad economic times. One of the problems with tax policy is that it’s so complicated. The federal code is longer than War and Peace, and it makes it hard in this thirty seconds or less media to explain the effects this compromise will have on the state.

But the fact remains people are willing to pay for the programs that benefit their families like public education and safety. Cuomo got the political victory for getting his agenda passed, but the reality is most New Yorker’s are facing the reality of those cuts.

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Filed under Long Island, Mayor Bloomberg, New York, Political Economy, Politics, property taxes, Public Policy, tax caps, taxes, Westchester

May 16, 2011 · 6:39 pm

No Place Like Home

As the housing market continues to slog along, many American’s are facing foreclosure, unable to sell their homes, and recent reports have shown banks are not willing to help people lower their monthly payments. On top of that, the Washington Post completed a yearlong investigation into the Department of Housing and Urban Development (HUD) showing many of the funds allocated have not been used.

According to the Post, $400 million dollars has been allocated for 700 projects across the country, but many of those projects have not been constructed because managers could not get funding from banks, land codes had been violated, or just plain old politics (Not In My Back Yard). Many of these grants were to be used to build developments for people living below the poverty line. This makes it a two edge problem; not having the money spent hurts the area it was supposed to be spent in, and it leaves people who need those homes looking for places to live.

The article described how HUD was having trouble enforcing their own rules because they did not have enough lawyers, and even while the majority of states tell HUD that the projects are not able to take off, the process is very slow because it goes through a lot of red tape. This left millions of dollars in accounts that have been sitting there for years. In the meantime, these funds could have been transferred for projects that are ready to be built, which would have created jobs and helped to keep the economy moving.

Some of this shouldn’t be that big of a surprise considering the state of the overall housing market. And enforcement has always been a problem when it comes to government programs, usually because agencies are understaffed. One way to raise revenue and lower the debt would be to hire more IRS agents. But if there is a lack of communication between local, state, and federal officials, there is an easy fix: the internet.

With all the work being done to make the federal government more transparent, and releasing data from within the agencies with data.gov, why not create a program that shows all the players involved within a project what step they are at? Agencies at HUD can look for the last time someone updated the project within the program, and if it has been a while they can get in touch with local authorities and ask for an update. There are plenty of programmers and companies that figure out how best to create these collaborations which, if done right, can make sure everyone is on the same page and build the projects that will benefit the families that need a roof over their heads.

The recent recent floods in the south have destroyed a number of houses, and even though the Post points out that some non-profits do not have the expertise to properly build them, there are plenty of organizations that do. In fact, many of them can be found working in New Orleans as I’m writing and you’re reading this post. Many of the houses being built are green houses where so family that lives in the house will save money on their heating and electric bills.

A major hurdle in this effort will be to get the banks to loan money to landlords and managers of these projects. But in a recent interview with housingfinance.com, Bob Simpson, Head of Fannie Mae’s Affordable Housing Unit said “As we look at our production on a month-to-month basis, we’re definitely very busy, and that’s probably the best sign that it’s working. We now have a dedicated affordable credit team, a dedicated production team, and a pricing team that just prices affordable transactions.” Translation: Since we were bailed out by the Federal Government, it gave us the ability to get rid of the loans we never should have made, and now we can start to create more loans that won’t bust.”

Last week, the major banks reported the amount of people who owed money on their mortgage was the lowest in 15 years, which could give them the confidence to start lending more money. Dorothy was right, there is no place like home, and building them can help America’s economy and families.

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Filed under Banks, finance, Government 2.0, Housing, HUD, poverty, Public Policy

March 16, 2011 · 1:14 am

Add Value To Your Buck

It’s almost that time of year again, tax season! OK, maybe I’m exaggerating on how exciting this is. The US tax code is longer than War and Peace, but just like the classic book, almost no one can understand it, and almost no one today has read it. But someone has to read the code in order to figure out how much money people owe their government. If only there was a simpler way…

Debating tax policy is almost as bad as actually paying them, but here I go. The last time any serious tax reform occurred was during the Reagan administration. The Tax Reform Act of 1986 reduced individual and corporate taxes almost by half, and indexed those standards for inflation. The number of tax brackets were also reduced. But the Act also included the Alternative Minimum Tax (AMT) which only complicated the code more. The more complicated the code became, the more loopholes were there for people to take advantage of. While less money was coming in, the government was spending more, which increased the national debt. The code has become so complicated, and hard to enforce, only 47% of American’s who file for federal taxes actually pay them.

President Obama has said he wants to reform the tax code to make it easier for Americans. But what’s the best way to do this? There are a lot of ideas out there. Some say there should be a flat tax where everyone pays the same amount. But that’s not progressive. It can also hurt those who do not have a lot of money, while people who earn more won’t be paying their fair share. Another idea is to eliminate loopholes and certain credits. This could work, but doesn’t go at the heart of the problem, which seems to be the way we calculate how much American’s need to pay.

One idea that works for forty other countries (mostly in Europe) is the Value Added Tax (VAT). Instead of pushing a sales tax onto the consumer, items are taxed at a percentage as the product is put together. So if the VAT was 10% it would work like this:

– The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer.

– The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20.

– The retailer charges the consumer $1.50 + ($1.50 x 10%) = $1.65 and pays the government $0.15, leaving the gross margin of $0.30.

The government gets paid each step of the way, and it is clear how much everyone owes so it is easy to enforce. Overall this reduces the costs to the consumer because they don’t have to pay so much at the end. The French implemented a VAT in 1954 and today it counts for half of the government’s income.

But there are opponents. People argue implementing a VAT can cause large amounts of fraud such as false claims. There have been instances where the individual or business argues that they did not know they had to pay a tax on a certain item. Then of course there is the old fashion “hidden sale” where the consumer is charged something that is completely made up.

Despite those concerns, studies show that if a 5% VAT was implemented, and covered 80% of goods people consume, it could generate roughly $260 billion. The Virginia Tax Review estimates that a VAT of 25% could pay for health care reform, exempt millions of American families from income taxes and still raise the revenues necessary to cut into the budget deficit.

One of the reasons American’s are less inclined to pay taxes now is because we became a individualistic society. When FDR was President, there was a “we are in this together” philosophy. But that has gone away. The book Bowling Alone explains it pretty well. But when you are paying taxes, you are paying for the freedoms that people in the Middle East and North Africa are fighting for. Whether you are rich or poor, everyone benefits one way or another, and those who don’t pay their taxes are cheating their fellow citizens.

Just because something is European doesn’t make it scary. Paying taxes is important. It goes to Veteran Hospitals, public parks, schools, and keeps our food and water clean. But paying for these services doesn’t have to be a burden. Instituting a VAT could bring in more money for areas that all Americans use, and everyone could get a bigger bang for their buck.


 

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Filed under Economics, Obama, Public Policy, taxes, Value Added Tax, VAT

November 29, 2010 · 9:44 pm

>Building A House

>

Remember when Republicans were saying: government should act like American households when it comes to its budget? It was a great line. Short, easy to understand, and appealed to the GOP base (aka Tea Baggers) which allowed them to get excited. It then culminated with the recent shellacking this past election. The household analogy was used time and time again even though it was false. While it would be great to be able to print our own money (or if money grew on trees), we gave that right to the federal government when we ratified the Constitution.

But because elections have consequences, the two parties will be fighting to show who is most fiscally conservative. Obama announced today that he will be issuing a two year pay freeze that will save the federal government two billion during current fiscal year, twenty-eight billion over next five years, and sixty billion over ten years. While it sounds good on paper, it’s really a political move. It’s worth pointing out that it won’t really be known how much is being saved until President Obama is out of office. And it’s no accident. That way the White House can keep citing those numbers as a way to say the deficit is being reduced. Also, the pay of federal employees isn’t the problem, it’s the benefits they get that is driving costs up. That’s why Defense Secretary Robert Gates is looking at ways to raise funds for the militaries Tricare. Of course, the new health care law will help maintain some of those costs, but apparently most of the new GOP governors won’t enact the policy in their states.

This pay freeze announcement comes on the same day that several liberal think tanks are unveiling plans that are trying to tackle the federal deficit, all of which cut programs by federal agencies. In the meantime, government bureaucrats are always lobbying to keep their programs running. Think of it as an annual review where you have to tell your boss what you did this past year. You have to go through everything to show what you did while having to worry about keeping your job. Government agencies worry about the same thing, except it’s all the time. They will give grand presentations, trips, gifts, and anything else that is legal to make sure they get the funding they think they need. While Obama doesn’t have a J. Edgar Hoover problem, he still needs to make sure his employees are happy.

And do I even need to go into the special interest lobbyists like Jack Abramoff? There are plenty of those guys too. But whether you know it or not, you too have someone lobbying for you. For instance, do you want to save the environment? There are plenty of environmental groups out there who talk to members of Congress and their staff every day. Just look up The Environmental Defense Fund and read about how the Environmental Protection Agency was created.

One of the most contentious issues when it comes to the budget is taxes. No one likes them, and if a politician ever talks about them, he/she better say they will be lowered. But if you want a balanced budget someone’s gotta pay for it.

The White House is right on this one, extend the Bush tax cuts for the middle class and let them expire for the rich. When people earning over a million dollars get a tax cut, they don’t spend the money, and it does nothing for the economy. What makes raising taxes even more volatile this year is that state governments have had to raise their taxes over the last four years. So if Congress does nothing, the people who need help the most will be giving more than they can. Middle and working class Americans need the break and will spend it on the items they need to live, which will also help the economy. They deserve the extension.

It is baffling me how many Republican candidates are considering running for President in 2012. Just today John Bolton (who has never run for public office before) is thinking about running for President. Political Action Committees are already in the first couple of primary states for Mitt Romney, and Sarah Palin will probably run as an average Joe just to make a few more million. In the meantime, decisions need to be made, and the people who actually have to balance their budget are hurting the most.

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Filed under Budget, Deficit, President Obama, Public Policy, Republicans, Salary Freeze, Sarah Palin

October 2, 2010 · 8:56 pm

>Capability vs. GDP

>

Goals are important. They give us something to strive for, get us to make the tough decisions that life requires to accomplish them, and in an ever complicated world, can help keep us focused on what is really important. For public policy purposes though, determining how to assess goals can be controversial. How can you count for hundreds of millions of people, and still implement public policies without interfering on what those same people want to accomplish for themselves?

Coincidently, in a time where many people are saying how economists are failing us, I completed my thesis on how new economic methods need to be used to assess a countries development. What economists are currently accounting for are inputs and outputs, how much it costs to produce the product, and how much money can be made by selling it. I don’t want to say this is a bad thing. There are legitimate arguments out there on why these numbers are important. For businesses to hire people, they need an estimate how much they are going to make, and how much of a loan they need from a bank.

But while the Great Recession has been over for a year, the poverty rate in the United States has dramatically increased. The organization that punched these numbers is highly respected, and all they did was their job. They saw Gross Domestic Product (GDP) went up three quarters in a row and declared everything was fine. Unfortunately, there are millions of people out there who would tell these economists differently.

GDP only accounts for the health of businesses, not the population that keeps them thriving. Instead of assuming that if businesses are prosperous the people are too, economists need to develop new goals that take into account for what people need in order for them to achieve what they are working towards. My thesis focused heavily on the work of Amartya Sen and his Capabilities Theory. This theory focuses on human development, bringing it back to the basics of education, health care, housing, freedom, democracy, and other factors, in order to ensure people are given a chance to accomplish the goals they set for themselves.

In his recent struggles to get the democratic base out to the polls, President Obama stated that during the Bush administration personal family incomes had fallen. But still, most economists thought the economy was good because GDP was going up. The fact is recessions happen, whether in a time of strong regulations or weak ones. You just have to hope they’re not as bad as the one we are in now and they don’t turn into a depression. What is great about the Capabilities Theory is that when recessions do happen, policies are already in place to make sure people are protected. By having economists measure basic goals that all people need, individuals will still have the opportunity to decide what they want to accomplish for themselves because they were given the capability to do so.

Of course, while democracy is a important for the Capabilities Theory, there are numerous examples that can be used to show how politics can be really stupid. Gail Collins had a good piece today on how some of the major races in the coming election have been outright dirty, where the candidates have resorted to political mudslinging. While the politicians and their advisors may see attack ads necessary to get their base out, it turns just as many people off, and doesn’t get any more people to vote for the person who put out the commercial. Even the numbers that economists come out with are at times manipulated to further a public officials agenda. But if new assessments of goals based on the Capabilities Theory were implemented, it would be harder to spin how many people are receiving a strong education, living in a safe neighborhood, and have what they need to support their families.

Elected politicians don’t get reelected on what they say about their opponent, it’s on their own record. By focusing on the people, instead of the corporations, elected officials will know what areas to focus on and try to do something about it. Then, it would be a lot harder for their opponent to come up with legitimate attacks.

This post may seem like a utopia to some people, but I am well aware there will always be socio-economic differences. But when I first learned about the Capabilities Theory, it was one of those things that just made sense, and hopefully after going through this tough time, more people will think it makes sense as well.

 

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Filed under Amartya Sen, Capabilities Theory, Economics, Politics, President Obama, Public Policy

July 1, 2010 · 4:33 pm

>Staying Positive

>

My intuition was partly confirmed when I was searching information for this post. After you type in “learning” into Google, “learning disabilities” is the third term on the drop down list.

I found some very good sites on what learning disabilities are, and some ways which parents can help their children, and adults can help themselves, when one is learning disabled. Kids Health and the Learning Disabilities Association of America has great information, and can help answer a lot of questions for people whos lives they effect, or for those who have never heard of the term learning disability.

There was a recent New York Times article which showed the problems teachers have when they have to teach students who are extremely disabled. What makes learning disabilities unique, is that you would never know that someone has a learning disability unless he or she tells you. Learning disabilities not only effect the development that one learns, but social development as well.

Students have only recently begun being diagnosed with learning disabilities, and they usually are in their early teens. Now, I don’t know anyone who liked middle school. Whenever I talk to anyone about it they always have bad memories, mostly from being picked on because, as you know, everyone is cool when they are twelve years old.

While school is a place to learn the skills that prepare you for the world, it is also a place where you are supposed to learn how to interact with other people without your parents telling you how to behave. But having a disability can make it difficult. Since you are struggling, school becomes a place where you are not comfortable. You are forced to work harder then your peers but still not getting as good of grades, your teachers keep telling you you’re doing something wrong, and then your friends are calling you an idiot. It’s not fun, and needless to say, you don’t feel too good about yourself.
Having a learning disability is not something that goes away. While there are methods which can help those who are learning disabled, there is no way to fix whatever it is that causes someone to have these troubles.

There still needs to be research done to determine how to help students who are having these struggles. But what we know is that these students need extra help not just with their homework, but figuring out the best ways for them to learn. Time needs to be set aside with a teacher who can show students how to take notes, organize their work, and also give them the confidence necessary in order to succeed.
Believe it or not though, there are some positives to have a learning disability. For one, you know what you’re good at. I’m 24, most of my friends have graduated, have jobs, and I still hear that they don’t know what they want to do with themselves. Even in undergrad, no one knew what they wanted to major in and had to figure out their niche. When deciding what type of job or career path someone with a disability wants to go in, they’re going to choose something that works toward their strengths. In the end they will be doing a job that they enjoy, and after all the struggles through school, will also be able to take more satisfaction in whatever they decide to do.
Being learning disabled also makes you a hard worker. All the days with tutors, or studying late at night, students with disabilities will be used to working those long hours that employers might need their employees to do.
Since learning disabilities are still relatively new to the world of education, those with disabilities may feel alone. But it is always important to remember that there are a lot of people with learning disabilities out there. Which is why I suspect so many people are googling the term. And even though it may be difficult at times, it’s important to think positively. Take a break from school/work and do something you enjoy, which people should do whether they have a disability or not!

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Filed under Education, Learning Disabilities, Public Policy